Eye on the News

Nicole Gelinas

New York Isnt Mexico

The problem with Bloombergs cash-transfer program

20 October 2006

Selected Responses:

Sent by B. Samuel Davis on 10-23-2006:

A terrific, well reasoned and timely article. Will it change anyone's mind, or will policy be changed at all? Of course not. With the failure of Republicans, due to the passivity of their leader, George Bush, to implement real reform, the opportunity for a sea change in the way government does things has passed. The conclusion that will be drawn is that it was tried and didn't work, despite the fact that Bush failed to implement ANY of the so-called Republican conservative agenda.

The result? We, and New York first of all, will have to learn all over again just what a disaster a liberal (liberal in the traditional sense of the word) government can be, most recently reflected in David Dinkins' New York. I do not think the City can take another round of such a system, which was never completely eliminated in the first place.

So what we can expect is a further move by New York to third-world status, as the tax rolls shrink, and the middle class disappears. The hiatus provided under Giuliani and to some extent Bloomberg will only be a memory as the City sinks below the weight of its spending policies. Doom and gloom? Not this time.

Your column(s), while true enough, will make little difference, as Bloomberg enacts another entitlement program, which once on the books will be a permanent drain on what will be increasingly scarce resources.

In outlining his new anti-poverty program, Mayor Michael Bloomberg said last month that he wants to try a social policy not previously tried in this nation: a version of the conditional cash transfer programs that international aid groups and government-aid programs have pioneered over the last decade in parts of Africa, Asia, and Latin America. Historically, the rest of the world has often looked to America for leadership in social policy, but there is no reason that we cannot also learn from the experience of others, the mayor noted.

But Bloomberg has misread the purpose of third-world conditional cash-transfer programs, and thus has misread their applicability to New York. In his speech, the mayor pointed out that such programs are designed to address the simple fact that the stress of poverty often causes people to make decisions . . . that often only worsen their long-term prospects. . . . Conditional cash transfers give them an incentive to make sound decisions instead, by paying people to do such things as send their kids to school or procure basic health care. The New York Times has lauded Bloomberg for emulating the brilliantly simple idea hit upon by the third world.

But in nations like Mexico and Bangladesh, where the programs originated, conditional cash transfer schemes just dont do what Bloomberg and the Times want them to do in New York. Rather than paying people to stop making bad, irrational decisions and start making good, rational ones, as such a program inevitably will try to do in Gotham, the third-world programs encourage poor people to make rational long-term decisions they could not have otherwise made, by compensating them for the very real short-term costs of doing so.

In Mexico, for example, one program, Progresa, offers poor families a set sumthe Mexican equivalent of about $62 in purchasing powerper child per month if the family either enrolls the child in school or keeps the child enrolled. But the money isnt a bonus for making a decision that any rational family would make anyway. Its a payment to cover the prohibitive costs the family incurs by sending the child to school in the first place.

In much of the developing world, public schools are spotty to non-existent, so parents often must pay high fees, whether formally or in bribes to teachers, to educate their children, and they must buy pricey uniforms and books for them, too. Whats more, families who send their kids to school must forgo the real money those children might otherwise earn by working.

Thats why, as a recent World Bank study noted, many conditional cash-transfer programs cover direct costsschool fees and supplies [and] transportation costs. Just as important, they compensate families for opportunity costs derived from the income lost as a result of sending children to school rather than to work.

The relationship between cash payments and the costs they alleviate is clear. Some programs offer larger grants for older children, since older kids can earn more in the workforce. And in Bangladesh, benefits are higher for girls, since mothers tend to keep them home to help with labor-intensive housework. So far, some programs have achieved real results. In Mexico, for instance, the percentage of boys in the workforce declined by as much as 25 percent, as mothers sent their sons to school, gratefully accepting Progresa money, at least partly to replace what the children would have made by working.

Programs like Progresa serve a real purpose in a nation like Mexico, where its economically rational, at least in the short-term, for a parent to send a child to work in a field or a factory rather than to school. But theres just no applicability to poor New York families, who dont face the same opportunity costs in making decisions about the future. Of course, some more affluent American parents do bribe their kids with cash, to get them to work hard for good grades, say, or lose weight or stop smoking. But such conditional rewards dont encourage virtuous behavior for its own sake; instead, they lead kids to feel entitled to a reward whenever they do something thats good for them. Thats exactly what Bloombergs program will do for poor adults.

In New York, unlike in the third world, poor parents dont have to pay to send their children to school. Nor do they face the tough choice of educating the kids or having enough money to put food on the table every night. Even when older children drop out, its not because theyre going to work instead. As Bloombergs poverty report states, one of the biggest problems with chronically poor teens and young adults is idleness.

And while conditional cash-transfer programs in the third world focus on health as well as education, theres no lesson for us to emulate in healthcare, either. In Jamaica and in Mexico, two cash-transfer programs offer food grants to pregnant women and nursing mothers, and to their pre-school children, if the mothers agree to follow nutritional guidelines and obtain pre-natal and pediatric care. But in America, weve long offered similar benefits through the Women, Infants, and Children (WIC) program. Further, poor American families can obtain decent healthcare through Medicaid and public hospitals.

If anything, what third-world cash-transfer programs can teach New York is far more impolitic than the lesson that the mayor has taken from them. The details of conditional cash-transfer programsand the modest hope they offer to the worlds poorcan startle us into remembering just how relatively lucky poor people are that they are poor in America, not elsewhere.

A poor Bronx mother is guaranteed a roof over her head (if not in public housing, then at least in a public shelter), basic health care through Medicaid, food for her children through food stamps, and the opportunity for her kids to acquire a basic education through the urban education system (however faulty).

A mother in Mexico or in Bangladesh who cant afford to send her child to a makeshift rural school without a conditional cash transfer because she needs him to earn money to help support his family instead would love to be so poor.